On June 30, 2017, the Department of Justice (“DOJ”) announced that it had declined to bring charges against and was closing its investigation into CDM Smith Inc. (“CDM”), a Boston-based engineering and construction group, for alleged FCPA offenses in India in light of CDM’s cooperation and agreement to disgorge the more than $4 million in profits that the DOJ asserted had been made from illegal conduct. Letter from Nicola J. Mrazek, Senior Litigation Counsel, U.S. Dep’t of Justice, Criminal Div., Fraud Section to Nathaniel B. Edmonds, Paul Hastings LLP (counsel to CDM), dated June 21, 2017. CDM had self-reported to the DOJ that certain employees in India had paid $1.2 million in bribes to officials at the National Highways Authority of India (“NHAI”) to win contracts for highway construction and design work and a water project. The declination with disgorgement was the seventh declination and the fourth declination with disgorgement reached as part of the government’s FCPA Pilot Program, which it unveiled in 2016 to encourage companies to self-report overseas corruption schemes. Shearman & Sterling LLP, Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act (July 5, 2017).
According to the DOJ, from 2011 to 2015, employees of CDM and its Indian subsidiary (“CDM India”) paid bribes to NHAI officials to secure contracts. The bribes allegedly amounted to approximately 2-4% of the value of each contract and were paid through false invoices to subcontractors who provided no services. CDM reportedly voluntarily disclosed the scheme, which the DOJ has said is a critical component to avoid prosecution as part of its Pilot Program. The DOJ also emphasized that it had declined prosecution of CDM because of its “thorough and comprehensive investigation”; its “full cooperation”; ongoing improvement of its compliance program and internal accounting controls; and its “full remediation” including the termination of all employees involved in the scheme. Additionally, CDM’s agreement to disgorge the $4 million in profits contributed to the DOJ’s decision to close the case.
CDM’s settlement and declination comes just two weeks after the DOJ declined to prosecute Linde North America Inc. (“Linde”) for alleged FCPA violations that took place between 2006 and 2009, also pursuant to the Pilot Program, and also after Linde agreed to disgorge profits. Letter from Laura Perkins, Assistant Chief & Nicholas Acker, Senior Trial Attorney, U.S. Dep’t of Justice, Criminal Div., Fraud Section to Lucinda Low, Steptoe & Johnson LLP (counsel to Linde), dated June 16, 2017. The disgorgement amount in the Linde matter was approximately $11.2 million, marking a break with previous declinations in which disgorgements amount were lower ($2.7 million and $335,000).
The Linde and CDM declinations serve to confirm that self-reporting under the Pilot Program is a viable option, even where the alleged violations may involve substantial sums of profits. Notably, however, both involve disgorgement of sums that the SEC (though not necessarily the DOJ) may have been time-barred from collecting under the recent decision in Kokesh v. SEC, which held that disgorgement collected by the agency is subject to a five-year statute of limitations. It is unclear whether the DOJ conditioned its declinations on the companies’ willingness to disgorge profits from the earlier years, or whether, in light of Kokesh v. SEC, the DOJ may be more willing to forego such disgorgement in future cases.
Click here to view Letter from Laura Perkins & Nicholas Acker to Lucinda Low (June 16, 2017)
Click here to view Letter from Nicola J. Mrazek to Nathaniel B. Edmonds (June 21, 2017)